The Probate Process and How to Avoid It

The term ‘probate’ refers to the process by which the affairs of a deceased individual are settled. Primarily, the probate process focuses on the distribution of the assets contained in the deceased’s estate. This can be a difficult matter, particularly if the affairs of the individual in question were complex or unusual.

Those who die intestate (that is, without having written a will) will not have the opportunity to specify who should oversee the probate process; an administrator will be appointed by the courts. In cases where an executor has been named in a will, the individual in question will take on responsibility for ensuring that the estate is disbursed correctly.

However, even if an executor has been named and instructions have been given in the will, the probate process can still be lengthy. This can mean that dependants and beneficiaries do not receive assets from the estate for some time, posing problems for financial security.

Problem and Solution

Avoiding the process of probate is a frequently overlooked element of estate planning. It is generally thought that, once a well-drafted will has been completed, affairs will be managed smoothly. However, this overlooks the necessity of a grant of probate, which can take some time. In the interim, although some insurance companies or banks will pay small sums to the dependants of the deceased, financial hardship can ensue as assets are essentially frozen.

The creation of a trust for the purpose of probate avoidance is a potential solution to this problem. The concept is simple: the establishment of such a trust can be an effective method of separating assets from the estate of the settlor (that is, the individual establishing the trust), and thus ensuring that these assets are not required to go through the probate process before passing to the intended beneficiaries.

Living Trusts

So-called ‘living trusts’ (also known as inter vivos trusts) are the best solution in these circumstances. Under such an arrangement it is possible for the settlor to also be named as beneficiary and trustee; in this way, they will continue to have control over, and benefit from, the assets. Crucially, however, the settlor transfers the legal title over the assets to the trust itself. In a legal sense, therefore, the assets are no longer the property of that individual.

While the settlor may be the beneficiary during their lifetime, they will also have named a beneficiary to whom the assets should pass upon the death of the former. This will be detailed in the document through which the trust was established, known as the trust instrument, which may also contain instructions regarding the method of disbursement to the final beneficiary. Living trusts of this kind can, for example, be combined with other trust types to not only avoid probate but also provide a tax-efficient method of inheritance.

Avoidance of probate does not seem to be a major concern for many people. However, the potential benefits of establishing a living trust of this kind far outweigh the work involved; it should be a relatively simple and inexpensive process. As a result, a living trust established for the purpose of probate avoidance should always be considered as part of an effective estate plan.